Q. Why should I have a basic buy-sell agreement for my business?
Having a buy-sell agreement is like having a will for your business. In the event you or your business partner die prematurely, having your wishes spelled out in such an agreement will ensure that your business will have a solid road map upon which to succeed.
Most importantly, buy-sell agreements need to be funded in order to be well-executed. Having life insurance in place gives the business a huge influx of cash when it is badly needed that can be used to buy out your shares or hire someone to take your place.
Q. Why do I need both life insurance and disability income replacement insurance policies to fund this agreement?
As an owner, it’s imperative to protect everything that you have worked so hard for. Life insurance is needed in the event of the premature death of you or another partner. Disability insurance comes into play if either you or one of your business partners becomes too sick or injured to continue working in your normal daily capacity. Also, adding business overhead expense coverage to your disability policy will keep your business out of financial jeopardy while you or your partner are away. Receiving the tax-free cash proceeds into the business will go a long way in paying salaries, keeping the lights on and your creditors at bay. Your loyal customers will be secure in continuing to do business with your firm.
Disability income replacement insurance comes into play when you or your business partner becomes too sick or injured to continue working in your normal capacity.
Adding business overhead expense (BOE) coverage to your disability income replacement policy will keep your company out of jeopardy. Receiving the tax-free cash proceeds into the business will go a long way in paying salaries, keeping the lights on and your creditors at bay and your loyal customers happy and secure in continuing to do business with your firm.
Q. Is purchasing both types of insurance expensive?
Not really. Rather than “self-insure” your buy-sell agreement, it is much less expensive to transfer the risk of premature death or being too sick or injured to work to a third party…the insurance company. By doing so, you are using an effective financial planning tool in mitigating the impact that this critical risk could have to your company’s bottom line. It’s simply smart business!
Q. What are some other business uses for life insurance?
When attracting new talent to your company, you spend a lot of time and resources training them for your business’ specific needs. If you would like to encourage their long-term loyalty, choose to do some deferred compensation planning, using both life insurance and disability insurance to reward them after they have reached significant milestones with your company.